The two day biotech rally is encouraging but does not give an “all-clear” signal for piling into biotech stocks although it certainly looks tradeable. First look at basic positions in ETFs and major funds in 2015. Read this post we did in 2013 comparing Fidelity Select Biotechnology Fund (FBIOX) to major ETFs. At that time the Fidelity Fund led ETFs but a lot has changed since September 2013 particularly the “biobubble” peaks of early 2014 and July 2015. Here is where we are now 2015 YTD on funds vs ETFs:

At the peak of the healthcare and biotech run this summer (and winter) FBIOX led the pack but faltered during the summer 30%+ correction.FidoBio now trails returns on major ETFs but the dividend impact is harder to track with mutual funds. FBIOX holdings are weighted toward large caps similar to the IBB.

And here is a quick review of key biotech market indicators:

Technicals have been very week with a broken SMA 20 line for the IBB but rallying to the SMA 50 line today. The XBI has broken through both lines but is up over 3% today holding above the critical $65 level.

Fundamentals have been disappointing with sentiment dampened by pricing concerns and a few high profile clinical failures. Q3 earnings were OK but Q4 will be scrutinized. The bullish assumption is that biotech and large cap drug stocks deliver growth from new products.

The tape has been good with 90% of biotech stocks up with a rising market; today for example ALKS, ALXN,BMY,INCY,REGN are near new highs.

Small caps need to show more strength and less volatility as they did in previous bull runs. Many of our new small cap biotech picks from October shot up but sold off hard in early December. Curis (CRIS), Geron (GERN) and Imprimis (IMMY) still look good. Small caps are lagging YTD with the IWM down 5.78%.

The FED could be an issue if several rate increases take place in 2016.A FED rate hike is expected today. Healthcare stocks could underperform with rising rates. The healthcare sector has been on a huge run since 2011 propelled by new blockbuster cancer and HCV drugs and ObamaCare -ACA but healthcare costs are rising and Congress is attacking the Affordable Care Act (ACA).

Summary

The seasonal biotech rally can still happen through early January. Biotech ETFs beat the market despite the big sell-off.

A balanced portfolio is urged in healthcare maybe with combination of FBIOX, IBB and PRHSX; XBI for aggressive portfolios.

We are still almost 18% off July highs and need to catapult out of a downward channel in the sector to confirm a long term secular bull market.

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About Raynovich Rod

Rod Raynovich is an experienced biotech investor and analyst with a focus in vaccines, tools, IVD’s and biopharmaceuticals. Prior to starting Raygent.com, he was a former technology transfer office at UCLA and he has held various executive positions in the biotech and medical device industry, including senior positions at NASDAQ listed biomedical companies. Prior to that Mr.Raynovich held management positions at Abbott, JNJ and Technicon.

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Rod Raynovich is the founder of Raygent Associates, a management consulting firm providing business development and strategic marketing services in the life science and medical device area. He publishes his thoughts and analysis on the biotech industry at www.raygent.com.